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American academic evaluates Reserve Bank

22 February 2005

American academic evaluates Reserve Bank crisis work

A visiting American banking researcher has commended the New Zealand Reserve Bank's work to prevent and handle a major financial crisis.

Professor Edward Kane, of Boston College in the United States, is the 2005 Professorial Fellow in Monetary and Financial Economics at the Reserve Bank of New Zealand and Victoria University of Wellington, a programme funded through the Victoria University Foundation. The objective of the programme is to enhance the development of monetary and financial-system policy in New Zealand by inviting independent specialists in monetary and financial economics of high international repute to further thinking and debate.

During his Fellowship, Professor Kane is independently examining the regulation and supervision of New Zealand's banking system, with a focus on crisis prevention and management in a cross-border context. He is especially interested in showing how observable differences in a country's political, economic, and institutional environment help to explain distinctive elements of its strategy for designing and operating a financial safety net, and dealing fairly and efficiently with bank failures.

As well as presenting corporate and university seminars throughout New Zealand, Professor Kane will be delivering a public lecture on March 7.

Professor Kane said he was impressed with the work being undertaken by the Reserve Bank to prevent a crisis and also to define how a major banking failure would be handled.
"While the Reserve Bank is aware that more has to be done, they're still well ahead of many other countries. The New Zealand banking disclosure standards, for example, are much stronger than those in the United States.

"A major banking failure is a central banker's worst nightmare and some people would rather not think about it at all. But I've been impressed that the Reserve Bank is prepared to consider issues surrounding a major collapse and particularly the thorny question of whether a bank in crisis should be bailed out and by whom. Should it be the taxpayer, the creditors or the depositors?

"The situation in New Zealand has an added dimension given that 85 percent of the system is controlled by banks based in Australia. The Reserve Bank has been active on this front as well, requiring Westpac to incorporate in New Zealand rather than operate as a branch and advising the Government not to cede supervision of Australian-owned banks entirely to home-country regulators in Australia."

Professor Kane holds a Bachelor of Science degree from Georgetown University and a PhD from the Massachusetts Institute of Technology. In addition to a distinguished academic background, including appointments at Ohio State, Princeton and Iowa State universities, Professor Kane has considerable experience in consulting for central banks, government, the American Bankers Association and the World Bank. He is a Senior Advisor for the Federal Deposit Insurance Corporation Center for Banking Research and has often testified before Congressional committees and served as an expert witness in financial-services litigation.

Professor Kane is a past president and fellow of the American Finance Association and a former Guggenheim fellow. Currently, he is president of the International Atlantic Economic Society, president-elect of the North American Economics and Finance Association, and a trustee of the Midwest Finance Association. Besides authoring three books, he has published widely in professional journals and serves currently on eight editorial boards. He served for 11 years as a charter member of the Shadow Financial Regulatory Committee.

Media are welcome to attend the public lecture at 6pm in Lecture Theatre 1, School of Law, Pipitea Campus, Lambton Quay, Wellington.


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